ABOUT SEAN STANNARD-STOCKTON

Sean Stannard-Stockton is the president and chief investment officer of Ensemble Capital Management, located in Burlingame, CA, midway between San Francisco and Silicon Valley. From 2006 through 2012, Sean authored the Tactical Philanthropy blog and wrote regular philanthropy columns for both the Financial Times and the Chronicle of Philanthropy. In 2012, Sean officially ended the blog to focus on growing Ensemble Capital.

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Are the Four Approaches to Philanthropy Valid?

March 23, 2011 – 10:36 am

My posts proposing Four Core Approaches to Philanthropy have been mostly well received. My intent has simply been to establish the legitimacy of the four different approaches as being distinct from each other and each having the potential to be effective.

Paul Brest of Hewlett has confirmed that my description of Strategic Philanthropy is valid and distinct from Philanthropic Investing. Philanthropic Investing advocate George Overholser has backed my description and is the originator of the idea that there is a distinction between Philanthropic Investors and Charitable Givers. Holden Karnofsky of GiveWell has confirmed that he views his organization’s efforts as promoting effective Charitable Giving, which he views as distinct from Philanthropic Investing and Strategic Philanthropy (interestingly, talking with Holden made me realize that the distinction between Philanthropic Investing and Charitable Giving resolves much of the debate over the importance of performance vs. impact).

However, not everyone agrees that the four approaches represent truly distinct categories. Some questioning has come from the leaders of the Center for Effective Philanthropy (CEP), an organization of which I think extremely highly.

After my first post on this topic, CEP president Phil Buchanan, responding to my contention that Philanthropic Investing was distinct from Strategic Philanthropy, wrote, “It’s a false choice.”

On Monday, I argued that each of the four distinct approaches can be a form of effective philanthropy. This was meant to refute what I believe is an incorrect view within the philanthropic field that Strategic Philanthropy is the only form of effective philanthropy. Almost any time I see “effective philanthropy” defined, the tenets of Strategic Philanthropy are used.

“Interesting post, Sean. The Center for Effective Philanthropy’s board of directors and staff spent a good deal of time, during our recently completed planning process, coming up with a working definition of foundation effectiveness. We do see effectiveness as requiring a strategic approach.

(Sean’s note: I’ve selectively quoted her description of each point to focus on the most relevant area of debate. click here to read the whole thing):

Clear goals

Coherent strategies to achieve those goals

Based on an analysis of the problem or issue, the social/historical context in which the problem or issue exists, the capacity of organizations working to address the problem or issue, costs and benefits of alternate strategies, and the potential pace of change

Informed by input from organizations and individuals closest to the problem

Rooted in a well-conceived theory of how the foundation’s efforts can lead to the desired change, why it is the best option, and, when possible, evidence that the strategy has worked elsewhere

Disciplined implementation of those strategies

Relevant performance indicators to assess progress”

Now a quick read of Alyse’s comment might see little to debate. As I wrote earlier, everyone trying to accomplish something (not just in philanthropy) should have a “strategy” (note the lower case), or a plan for accomplishing their goal. But the phrase Strategic Philanthropy doesn’t just mean philanthropy that is done according to a plan. It means an approach to philanthropy that positions the donor as a problem solver, not someone who just invests in nonprofits that are solving problems, not someone who just pays a nonprofit to execute their solutions, but someone who is actively engaging in engineering solutions.

The fact that Alyse disagrees with my conclusion that the four approaches are distinct and and each have the potential to be done effectively, lays bare the operating assumption that effective philanthropy is, and only is, Strategic Philanthropy (note that CEP itself is named the Center for Effective Philanthropy, but uses the tenets of Strategic Philanthropy to define “effectiveness”).

It is this common conflation of philanthropic effectiveness with Strategic Philanthropy that is driving me to write these posts.

Now none of this is meant to disparage the work of CEP. As I wrote earlier, I think very highly of the organization and am a big fan of their research. My point is just that their work is geared towards defining and implementing effective Strategic Philanthropy. But by conflating the two concepts, we ignore the fact that a Charitable Buyer can be highly effective in choosing which nonprofits to pay to execute their programs without having to have engineered a theory of change. We ignore the fact that a Philanthropic Investor can be highly effective through a process of selecting high performing nonprofits to supply with growth capital, without needing to view themselves as problem solvers.

As CEP’s definition of effectiveness makes clear, they view the focus of attention for the effective philanthropist should be analyzing social problems and implementing strategies to solve those problems.

But for Charitable Givers, the focus of attention (as we see, for example, from GiveWell’s material describing themselves) should be on the cost effectives of grantee level impact. How much bang for their buck a donor can expect.

For Philanthropic Investors, the focus of attention (as we see, for example, from New Profit’s material describing themselves) should be on organizational analysis and and the ability for new growth capital to be used to grow the nonprofit enterprise.

At the risk of being repetitive, I am not arguing that theses approaches are mutually exclusive or that they should be pursued only in a pure form. Instead, I simply put forward the idea that Strategic Philanthropy is not the only form of effective philanthropy and in fact all four approaches are mutually dependent on the effective execution of the other forms occurring within the ecosystem in which they are operating.

Unlike a formal white paper, these posts I’ve been writing are all first draft material. I greatly encourage you to challenge my thinking on this topic, because doing so can help me refine the way I’m describing the approaches, decide to toss the framework in the dustbin if it isn’t valid, or possible write up a formal paper on the topic at some point in the future if I’m able to establish the robustness of the framework.

12 Comments

Sean, I just want to say for the record that I think this series of posts has been extremely helpful and clarifying. I’m generally a big fan of strategic philanthropy and theories of change, and as such I’m not quite sure yet where I come down on the debate between you & CEP in terms of the role that strategy plays in maximizing impact. It also seems to me a very big leap of faith (or, alternatively, a bit of a cop-out) to assert that there are no value differences between the four approaches; in other words, that one can be equally successful using any of them. However, regardless of the answer to those questions, I do think that the framework you’ve developed is quite valid and describes four very distinct approaches to using money for the greater good.

I’m reading what you wrote again and I guess I misinterpreted you a bit there; you’re not saying that anyone can be equally effective using any of the approaches, just that all of the approaches have to be in use in order for the ecosystem to work. Okay, I can get on board there. But for me it begs the question: how does one decide what kind of donor to be? It doesn’t seem like you’ve really addressed that yet.

Great question Ian. I plan on writing about what it takes to be effective at each.

I’ve argued in the past that Philanthropic Investing offers the most opportunity for impact. But I’ve been backing away from that view. I think it is more about who is best positioned to do what and how each approach should be implemented. And as you noted, I think that each approach is dependent on the others being pursued in a functional way.

Helpful post – thanks Sean. I very much hope that your descriptions move the field forward and help to clarify the philanthropic approaches that are available.

I do not disagree that the four approaches are distinct and that each has potential to be done effectively – I simply think that some approaches are more limited than others.

We at CEP acknowledge that there are many forms of philanthropy that donors and foundations may choose to pursue. However, we do believe that if a foundation aspires to have the most impact it can with the resources at its disposal, strategy is necessary. It is one of four components that we believe are required for effectiveness, and strategy need not be “top-down.” Indeed, the best strategies aren’t – they are informed by grantees and others working on the ground who often possess the best knowledge. Those readers who are less familiar with our research on categories of philanthropic decision makers, from “charitable bankers” to “total strategists,” might find this site helpful when thinking about these issues: http://strategy.effectivephilanthropy.org/.

Thanks Alyse. I think we’re staking our really quite different positions on this. You’re arguing that there is a continuum of effectiveness from less effective to more effective approaches. I’m arguing that each approach plays a really quite different role and each have the potential to be performed effectively (or not).

It seems to me that if you decide that strategic philanthropy is the only truly effective approach, whether the funder develops their theory of change internally or allows it to be “informed” by outsiders, then you limit the potential of performing effective philanthropy to a small number of very wealthy donors.

If you assume for a moment that Partners in Health was the best organization in disaster relief after the Haitian earthquake, can’t an every day donor who wants to help feel that they are being effective by cutting a check to PIH so they can deliver their programs to people in need (instead of cutting a check to another grantee under consideration)? Does only a comprehensive, funder owned strategy for helping in Haiti qualify as effective? If so, does that mean we can never hope to make the bulk of giving effective, since we know the vast bulk comes from every day people who will never be in a position to capably deploy a Strategic Philanthropy approach?

Sean, Maybe we are just talking about different audiences? The working definition of foundation effectiveness that my CEP colleague Alyse shared is one our board and staff developed with our audience in mind: larger, staffed foundations. I gather you are speaking to a much broader audience. Also, nothing in what we have said or written about strategy suggests the kind of top-down dynamic you seem to ascribe to strategy when you use phrases like “funder-owned.” The best strategies are not “funder-owned” – they are embraced by a variety of different actors. A single funder acting alone doesn’t create impact — and effective foundations understand that.

First on “funder owned”. Sorry to have put words in your mouth. Where I’m coming from is that most all practitioners of Strategic Philanthropy have a theory of change. If you have a theory of change, it is “yours” and that’s all I meant by funder-owned. It may well have been heavily influenced by grantees and outside perspectives, but if you draft your own theory of change, which philanthropic investors and Charitable Givers do not need to do, then you are practicing Strategic Philanthropy as I’ve defined in.

Why do you say that a single funder alone doesn’t create impact? Do you mean that they don’t create impact without their grantees or without other funders?

I think Phil is correct that perhaps we’re talking about different audiences – do you think it is also possible we’re working with different definitions of strategy? I think that strategy – a word CEP would define differently – would be essential to the institutional investor. That is, how, exactly will the funder work to strengthen the nonprofits it supports?

I’m trying to sketch out four approaches that would apply to all giving, not just large or small donors. However, I’m using the word “strategy” in a precise way for these posts. I wrote about what I meant by the word here.

As I wrote, of course people who seek to do something well should have a strategy to do so. That’s not unique to philanthropy. However Strategic Philanthropy is not just about having a strategy. It is broadly practiced as a form of philanthropy where the foundation tries to solve problems and has their own theory of change. This is fundamentally different from being a Philanthropic Investor or Charitable Giver.

In your definition of effectiveness, you talk about deploying a strategy that is “Based on an analysis of the problem or issue”, “Informed by input from organizations and individuals closest to the problem”, and “Rooted in a well-conceived theory of how the foundation’s efforts can lead to the desired change”.

My reading of that, correct me if I’m wrong, is that you’re defining effectives in a way that requires that that funders (or at least large staffed foundations) operate as problem solvers (since you’re saying they must analyze the problem and get input from people close to the problem) and that they deploy a strategy that is revolves around how the funders actions can solve the problem.

What I’m arguing is that problem solving is that what Charitable Giving and Philanthropic Investing is about. Problem solving is that nonprofits do or what Strategic Philanthropists try to do. But Charitable Givers can be highly effective if they comparison shop for the most cost effective (on a quality adjusted basis) program execution to fund and Philanthropic Investors can be effective by providing growth capital to nonprofits that they believe are well positioned to use that capital to grow their ability to deliver effective programs.

Another way to reveal these distinctions is to ask how the various approaches feel to a nonprofit provider of services. If I understand your distinctions, it would be difficult for a nonprofit to work with more than one Strategic Philanthropist. To do so, would be to invite multiple strategies and theories of change into the same operating environment. the difficulties are exacerbated because most Strategic Philanthropists are reluctant to join boards — even though they have strong strategic agendas. The result can be a boardroom that looses its ability to synthesize multiple strategic tugs and pulls into a single set of well-focused operating goals.

The other three types seem easier to work with on a many-to-basis. For example, multiple Philanthropic Investors join together in supporting a single strategy that is determined by the nonprofit. (They don’t insist on engineering the strategies themselves, but, rather, are willing to rally together around a common strategy/theory of change.) And multitudes of Charitable Givers (who commonly have wildly divergent reasons for making the choices they make) can nevertheless exchange money for execution from same organization without being collectively disruptive.

I mostly agree. Clearly Charitable Givers will hold little to no sway over a nonprofit, except in the case where a Charitable Giver becomes a very big part of revenue. Large customers do sometimes demand “custom” products/services. But if they exercise this ability to exert control, they may quickly end up looking like a Strategic Philanthropists since by asking for change they are implicitly saying that their own beliefs/theories are of more importance to them than the nonprofit’s own theory of change.

Multiple Philanthropic Investors who do not seek to exert too much control can certainly support a nonprofit’s strategy. But too many venture type Philanthropic Investors who seek board seeks of strong input may create the same problem you attribute to Strategic Philanthropists.

Multiple Strategic Philanthropists can create the problem you suggest, but don’t have to if the nonprofit only accepts grants in exchange for program execution that is with their core expertise.

It seems to me that when a nonprofit takes grant money from a Charitable Giver, they are in effect acting like a business-to-consumer enterprise. When they accept money from a Strategic Philanthropist, they are acting like a business-to-business enterprise because the “customer” has their own strategic agenda.

When acting as a “vendor” in this way, for-profit and nonprofit B2B companies will regularly tweak their offering to meet the needs of their customer. But they’ll run into problems if they radically change their offering over and over to meet the needs of their customers.

So I would say that the issue you raise regarding many Strategic Philanthropists funding a nonprofit is really an issue with nonprofits that agree to remake their program over and over. Also, a Strategic Philanthropist may not ask for any changes from a grantee. They may just be paying for program execution that fits into their own broader theory of change.

It is true that Strategic Philanthropists prefer not to ask nonprofits to make changes. Instead, though, nonprofits often OFFER to make the changes. They write a grant proposal that works backwards from what they perceive is wanted by the funder. They are willing to do so because they lack enough capital of their own to say “no” to distraction.

We are now getting to the heart of the matter: Money to do what you do vs. money to change what you do.

And: Changes that make progress towards enacting a single unified strategy vs. changes that wonder as the drivers of strategic vision are switched out

The role of Philanthropic Investors is to pay the bills while an organization stays focused on its own strategy for a long enough time to become compelling. So compelling that Charitable Givers will flock. (I suppose that “passive” Strategic Philanthropists might also flock, if, by coincidence, they happen to have strategies for which the organization is already a perfect fit.)

You also make a key point about the Philanthropic Investors: if they are not in strategic harmony with the other Philanthropic Investors, then, in fact, they become (potentially disruptive) Strategic Philanthropists.

To me, this is all about creating focus and alignment where it matters the most: inside the organizations that actually do the work.